Consider a pork belly swap contract calling for the exchange of 100,000 pork bellies at the end of each year for a period of 3 years. The discount factors for maturities of 1, 2 and 3 years are 0.96, 0.94 and 0.91, respectively. Storing pork bellies is costly and incurs a cost at a continuously- compounded rate of 4% p.a.. The current spot price for a single pork belly is $1.20. You may assume that a forward market for pork bellies exists. (a) What are the forward prices for delivery of 1 pork belly in 1, 2 and 3 years? (b) What is the swap rate for this 3-year pork belly swap? (c) A swap is a financially engineered contract that combines a position in forwards with a position in (zero-coupon) bonds. What is the replicating portfolio for the swap counterparty receiving the pork bellies? (d) What condition (contango or backwardation) should the forward curve satisfy such that the long party in the swap contract will effectively borrow money from the short party in the swap contract in the early part of the swap contract? Carefully motivate your answer. (e) After one year and just after the first swap payment has been made, the pork belly spot price has fallen to $1. Costs associated with the forward contracts are unchanged. The discount factors for maturities of 1 and 2 years are 0.99 and 0.95, respectively. What is the value of the swap to the party that is long the pork belly swap at this point?